Currencies

Thursday May 15, 04:57 PM
Forex - Dollar remains on the backfoot against euro, pound

LONDON (Thomson Financial) - The dollar remained weaker against the euro and the pound as the U.S. currency remained under pressure in the wake of soft inflation data Wednesday, suggesting the Federal Reserve may have room to reduce interest rates further.

Meanwhile, stronger-than-expected GDP figures Thursday gave a boost to euro, while the pound continued to gain on the back of Wednesday's hawkish Bank of England Inflation Report.

'The dollar took a bit of a hit from the inflation figures yesterday, which mean the Federal Reserve might have more room than previously thought to cut interest rates,' said Mic Mills, a trader at TradIndex.com.

Figures showed euro zone GDP growth accelerated to 0.7 percent in the first quarter from 0.4 percent in the fourth quarter. Growth was boosted by particularly strong growth in Germany, where the economy grew by a massive 1.5 percent on a quarter-on-quarter basis, the fastest rate recorded since 1996.

With further data confirming CPI (NYSE: CPY - news) inflation for the year to April at 3.3 percent, the news further cemented expectations that the European Central Bank will not cut interest rates any time soon.

'On balance, the current data strengthen the position of the ECB hawks ... For now, the ECB looks set to be firmly on hold, at least until after the summer break and possibly much longer,' said Holger Schmieding at Bank of America (NYSE: IKJ - news) .

Similarly in the UK, unexpectedly strong inflation figures on Tuesday, followed by a relatively hawkish Bank of England Inflation Report on Wednesday -- where inflation forecasts were raised, though growth forecasts lowered -- have suggested the Bank of England will not be in a position to cut interest rates in the coming months.

'The UK inflation figures are looking pretty grim, so it looks like the Bank of England can't cut rates any time soon,' TradIndex's Mills (NYSE: MLS - news) said.

Among other data released Thursday, there was more evidence that the U.S. economy is far from being out of the woods just yet. U.S. industrial production fell faster than expected in April, while the Empire index of manufacturing activity in the New York region for May also came in below forecasts.

London 1532 GMT London 1119 GMT

U.S. dollar

yen 104.69 down from 104.98

Swiss franc 1.0544 up from 1.0538

Euro

U.S. dollar 1.5477 down from 1.5497

pound 0.7951 down from 0.7970

yen 162.07 down from 162.69

Swiss franc 1.6324 down from 1.6330

Pound

U.S. dollar 1.9461 up from 1.9436

yen 203.79 down from 204.05